ICBC's Jiang: Building "China's Citibank"
Jiang Jianqing counts as one of the Young Turks of the Chinese financial system. Though just 48 years old, Jiang chairs the Industrial & Commercial Bank of China, the country's largest bank and, ranked by its 4.2 trillion renminbi in assets, the world's 10th largest. It controls a staggering one-quarter of the Chinese banking market, employs 470,000 people, and counts 420 million individual customers among its client base. Jiang's job is to clean up its bad loans, overhaul the bank, and move it toward higher profitability, with an eye to an eventual public listing.
Jiang is engaged in a dry run at the moment, as he prepares to inject his Hong Kong operations into a publicly listed Hong Kong bank, Union Bank, in which ICBC recently acquired a 70% stake. He recently spoke with BusinessWeek Asia Regional Editor Mark L. Clifford and Beijing Bureau Chief Dexter Roberts at the bank's Beijing headquarters. Edited excerpts from their conversation follow:
On restructuring and growth:
Certainly there will be further steps taken by the bank to employ stronger and more effective Hong Kong operations. [But] our main focus will be on the restructuring of the China mainland operations. Considering its large scale, the restructuring of the whole bank will be very complicated and very arduous.... The bank is now striving hard to apply advanced corporate culture and advanced techniques of controlling credit risks. We are also facing the problem of historical nonperforming loans [NPLs].
My vision 10 years out is for ICBC to be one of the world's largest and best banks, not only in terms of assets size but in technology and marketing. The task is for us to become China's HSBC or China's Citibank. To achieve this aim, we have to start now. We shall face a lot of challenges.
I think the priority for our restructuring shall be focused on efficiency, quality, and management. Our efficiency will be focused on annual growth. Last year's growth [in profits] was 28%. As for quality, we shall apply international standards [in areas like bad-loan classification]. As for management, we shall apply all kinds of risk-based control systems to bring [the bank] to a higher management level. We lag behind in credit risk-control, efficiency, management, and technology.
ICBC's present base is mainly domestic. We are also mobilizing ourselves to tap international markets. We not only shall develop more corporate clients but we will also focus more on individual clients. Consumption loans, mostly mortgage loans, grew 33% in 2000. We hope for a 40% increase this year.
On coming to grips with nonperforming loans:
In 1999, ICBC transferred 407.7 billion renminbi in nonperforming loans to Huarong Asset Management. The NPLs [transferred to Huarong] were only part of our total. There are still some existing NPLS, but the percentage of NPLs has been reducing since then. We will make more use of our bad-loan provisions. We will provide for 24 billion renminbi in bad-loan provisions [in the 2000 accounts]. I foresee after three to five years, the NPL problem for the bank will be solved to a large extent.
Recently, Mr. Dai Xianlong [governor of the People's Bank of China] gave an explanation of this NPL classification. There are three types of NPLS: overdue, doubtful, and bad loans. He gave a figure saying the state-owned commercial banks have 25% NPLs, but bad loans only amount to 3%. The figure given by Mr. Dai is roughly the same for ICBC.
From the very beginning, there has been a large difference between Chinese [bad-loan] standards and foreign standards. Since 1998, ICBC has begun to apply [the foreign] standard [as well as the domestic one]. We haven't provided the figures in our annual report, but we provide them to international [rating] agencies.
On listing ICBC and other Chinese banks:
Listing our operations in Hong Kong is an experiment. Listing of the whole bank is our aim. I think the state-owned commercial banks in China will become state majority-held listed banks. Certainly, the work before the listing of the whole bank will be very arduous. We still have a long way to go. Within two or three years, the listing of the whole bank will not be feasible. But listing part of the bank will be very possible.
The top leaders of the central government take a very active and very positive attitude toward the listing of China's state-owned enterprises.... I think the main aim of the bank's public offering should be focused on transparency and supervision from the external shareholders.
Edited by Douglas Harbrecht